THESE are joyous days for Israel. As the Jewish state celebrates its 70th anniversary, it is enjoying sustained economic growth (see chart), its lowest unemployment rate in decades, booming high-tech exports and a growing list of international companies eager to set up research centres on its soil.

In an unstable region, Israel is more secure than ever. Arab states around it are in chaos and regional powers including Egypt and Saudi Arabia are eager to form alliances to confront Iran and Islamists. A procession of world leaders visits Jerusalem. Binyamin Netanyahu, its prime minister, is well received in capitals across the globe. Israel’s foreign relations have never seemed in such good health. This week’s relocation of the American embassy from Tel Aviv to Jerusalem is a moment of glory. And Israel even won the Eurovision Song Contest, despite not being in Europe.

Much has contributed to Israel’s success. A transition from a centralised economy, beginning in 1985, kept it from an inflationary meltdown, while it also hung on to popular parts of its socialist legacy such as a free national-health service and a decent education system. A highly skilled workforce, including many young people trained by the Israeli army and 1m immigrants who arrived during the collapse of the Soviet Union, has built many high-tech businesses.

Pressure on Israel to solve its conflict with the Palestinians, who share the same small parcel of land between the Mediterranean and Jordan river, has eased. Arab governments have other worries, and often value Israeli trade and security co-operation much more than paying lip service to the Palestinian cause. Donald Trump likes Israel just the way it is.

But Israel should not celebrate too wildly. Israeli-Arabs, many of them poor, struggle to integrate. And ultra-Orthodox Jews, whose numbers are rising fast, often do not work. The two groups make up over 30% of the population, putting a strain on Israel’s welfare state. Technological success is fuelling resentment among those left behind in the “old economy”. Infrastructure is creaking and public transport is dilapidated. Xenophobia towards non-Jews and African refugees is on the increase.

Although this resembles the problems of most Western democracies, Israel faces unique challenges, too. It lacks a political consensus to draft a constitution that will safeguard its democracy. Unresolved contradictions of state and synagogue allow the Orthodox rabbinate sole control over marriage and divorce. Israel’s concept of citizenship, based on serving as a haven for all Jews, is hopelessly outdated. Above all looms the Palestinian issue. Foreign pressure on Israel may have subsided, but 4.5m demoralised and divided Palestinians live in Gaza and the West Bank.

The good news is that Israel still has plenty of scope to develop its economy, particularly if it can find ways to integrate the groups that have been left behind. The bad news is that Mr Netanyahu, who has based his electoral success on divisive politics and the fear of Arabs, shows little inclination to use Israel’s moment of advantage to seek a lasting peace with Palestinians.